The Japan International Cooperation
Agency (JICA) has signed a Japanese soft loan agreement with the government of
Pakistan with up to 23 billion yen for the "National Transmission Lines and Grid
Stations Strengthening Project".

This is the first Japanese ODA loan
project based on the Pakistan Donors Conference hosted by Japan in April 2009,
where a maximum of $1 billion in aid was pledged over the next two years. This
project will construct and expand high-voltage (500kV and 220kV) substations (4
sites) and related transmission lines (approximately 428 km) in Punjab and Sindh
provinces that are home to approximately four-fifth of the country's total
population.

Providing a reliable and efficient
power supply will improve the serious power shortage and contribute to economic
development and improvement of living standards of local residents in the
concerned area.

The funds will be allocated to the
civil works and equipment procurement costs related to the new construction and
expansion of substations and related transmission lines. The operations and
maintenance of the newly constructed and expanded substations and related
transmission lines in this project will be implemented by employees trained at
the training institution that will be strengthened under JICA technical
cooperation.

Power supply in Pakistan has been
unable to keep up with power demand, which is growing at an annual 7 per cent
rate since the last decade. Demand-supply gap is reportedly one-fourth of the
demand or 4,500MW to 5,000MW, causing nation-wide power cut for around 10 hours
per day. Due to the frequent power cut, machinery at factories frequently stop
operations leading to stagnated production activities; and even in the country's
important agriculture and industry are suffering from the power outages.
Machinery-dependent agriculture works are impeded due to power breakdowns. One
of the causes of this power shortage is the high losses incurred due to poor
transmission and distribution facilities.

Pakistan's power transmission and
distribution loss ratio is 21.6 per cent and markedly high, in contrast to Japan
(5 per cent), and Sri Lanka (15 per cent). The purpose of this project is to
reduce losses, which are equivalent to the power consumption of about 2.05
million people. Pakistan achieved an economic growth of about 6.5 per cent
annually for five consecutive years until Fiscal Year 2007/2008 (July 2007 to
June 2008).

In 2008, the country's foreign currency
reserves rapidly fell due to the sharp increase in international food and fuel
prices as well as foreign capital outflow caused by the global financial crisis.

To improve this economic situation, the
government of Pakistan has pursued an economic stabilization program under IMF
assistance, but the FY2008/2009 economic growth rate dropped to 2 per cent.

Since the 9/11, the international
community has continued to fight with the terrorists, but anti-government forces
continue to fight back along the Afghanistan and Pakistani borders, and
continually threaten public security both in Pakistan and in the region.

After April 2009, the Pakistani
government forces conducted military operations in the border regions that begot
numerous internally displaced persons. The country plays an important role in
the international community's fight against terrorism. It is vital that Pakistan
achieves economic and political stability as a modern and moderate Islamic
nation in order to achieve peace and stability.

Japan's new strategy addressing the
threat of terrorism is (I) assisting for economic growth (energy including
electricity, infrastructure development), for macroeconomic reform (co-financing
with the World Bank), and for improvement of people's livelihood in poverty
reduction sector (health, basic education, rural development), and (2) assisting
for improvement of people's livelihood in regions such as 'North West Frontier
Province' (NWFP) and Federally Administrated Tribal Areas (FATA).

JICA will employ an integrated approach
taking advantage of three schemes of assistance, technical cooperation, loan
assistance (yen-loans), and grant aid, to actively support Pakistan.